A year after Apple bond sale, investors wonder about more debt

As Apple Inc.
reviews its performance from the last quarter on Wednesday, the technology company\’s bonds have put in a solid performance over the last few months as well.

But the debt has come off its highest prices of the year as bondholders speculate that the computer maker may have to issue more debt to fund its shareholder friendly activities. That was heightened when the firm said as part of its earnings announcement Wednesday that it would increase its buybacks to $90 billion from $60 billion.

\”They’ve come off the tights on concerns the company will look to do additional share buybacks, which may or may not involve issuing debt. For that reason you’ve seen some cautiousness,\” said Matt Duch, portfolio manager at Calvert Investments, who added that he sold some of his Apple bonds as prices crested.

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It\’s been nearly a year since Apple sold what was then a record $17 billion in high-grade corporate debt to fund its shareholder buyback program. The 10-year notes were priced to yield 2.40% as the company sold debt at the bond market\’s recent peak.

Then, the bond market sold off last summer as investors speculated about when the Federal Reserve would begin withdrawing its bond-buying stimulus program. The 10-year Treasury note
yield jumped from below 2% in May to as high as 3% at the beginning of last September, sending the prices of almost all types of debt lower, including Apple bonds.

The Apple bonds steadied last fall, and since the beginning of the year have been on a gradual upward trend. The 10-year Apple bond yield, which falls as prices rise, was at 3.29% on Wednesday, or 60 basis points above comparable Treasurys, according to bond-trading platform MarketAxess. That\’s down from 3.66%, or 66 basis points above Treasurys, on the first trading day of January.

Nonetheless, that\’s more than the 3.20%, or 55 basis points above Treasurys, that the notes yielded on April 10. The notes have come off their lowest yields as bondholders wonder whether Apple will need to issue debt to fund its commitment to its shareholder plan, said Duch. Despite the company\’s strong credit rating, added debt could force bond investors to demand more yield as compensation.

Below, the spread on Apple\’s 10-year note over the past month, per MarketAxess:

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